How Your Supply Chain Impacts Corporate Strategy (Part 2)

If you think of your company’s value chain as a place where the corporate masochists of procurement beat up helpless suppliers, think again.

In fact, a company’s supply chain can be as important to corporate strategy as marketing, according to Dr. Phil Dover, Professor Emeritus at Babson Global.

Dover, speaking at the Institute for the Study of Business Market’s (ISBM) “Big Talk: The Stakeholder Value Chain” seminar, made the connection between a corporation’s business strategy and its supply chain by laying out the logical ties.

He started by explaining that companies must have a distinctive value proposition in order to flourish (some might say, survive) in today’s environment.

Usually, he said, the corporation’s value proposition is executed through its value chain, as companies select suppliers who can help them achieve their goals for cost, quality and a whole host of performance characteristics.

Thus the structure of the value chain reflects the value proposition.

That all sounds fairly logical. But we often act in a way that assumes the opposite.

I think of it this way: In our personal lives, we often fall into the psychological trap known as projection, in which we project our own personal feelings or perception onto others.

And we all too often do the same thing in the business world, assuming that our competitors do exactly the same things we do, in the same way.

However, the essence of strategy and the value proposition discussed above, Dover says, is quite the opposite.

“We do different things than our competition. Or we do the same things, differently,” he said. And those differences produce our distinctive competitive advantage. Having that strong value proposition built into our value chain, over time, creates unique capabilities, ones that are difficult to copy.

The more difficult and advanced these capabilities are, the stronger and more sustainable the competitive advantage.

And as that change will continue, marketers need to communicate much more effectively with their value chain counterparts, or risk bringing down the corporate house of cards.

It doesn’t help that the marketing and supply chain functions of B2B manufacturing organizations traditionally view each other with skepticism, if not outright hostility.

Marketers often view supply chain people as penny-pinchers who only care about reducing costs and increasing inventory turns. They are, in short, the enemy.

To supply chain people, on the other hand, marketers spend lots of money, with the vague promise of trying to increase market share and grow revenue. In other words, they throw away the gains the supply chain people work so hard to achieve.

Neither approach serves their companies well.

Holistic View Needed

Companies suffer when there’s no holistic view of the value chain throughout the organization, Heather Sheehan told the audience. Sheehan recently retired as Vice President, Indirect Sourcing and Logistics, at Danaher Corporation.

And while we often tend to think that the supply chain function is in place simply to drive down costs, that view is terribly short-sighted, she said.

And more importantly, Miller continued, “it is not good strategy to drive prices down to the basement.” In fact, he stressed procurement needs to be every bit as strategic as marketing, understanding that manufacturers need reliable suppliers. Because if suppliers can’t be profitable, they won’t be reliable. And the company itself won’t be profitable either.

That’s especially true of suppliers who help you create a strong, sustainable value proposition.

As Joanne Wright, Vice President of IBM Systems Supply Chain, noted, that kind of strategic supplier needs to be brought even closer.

“The more intelligent you make your suppliers,” she said, “the more value they can provide.”

The best approach, the experts said, is to make sure everyone’s on the same page, working toward the same goals.

That requires marketing strategy and value chain strategy proceed directly from the business strategy…both working cooperatively for the same goals. And both being viewed as strategic.

Three Things That Make Your Value Proposition Stronger

1. Your value proposition is significantly different from those of your competitors.